Altruistic Choice under Incomplete Information about the Other’s Preference and Expectation
28 Pages Posted: 29 Jan 2019
Date Written: January 17, 2019
The literature is almost silent on the behavior of altruistic decision-makers, who have to make a choice for another individual from a discrete set of alternatives without knowing her or his preference ordering and expectation. Because of incomplete information about preference and expectation of the other, the choice of an altruistic chooser is made on basis of signals that s/he receives and hence is risky. A theoretical model of such choice decision has been developed in this paper drawing upon insights from psychological game theory. The decision depends on whether the altruistic chooser’s utility from surprising the other offsets the disutility from disappointing her or him. A surprise-seeker takes the risk of disappointing the other, while a regret-averse decision-maker avoids such risk. Predictions of the model has been validated by a classroom experiment simulating altruistic choice scenario. In a between-subjects design, surprise-seeking, regret-averse and neutral behaviors were induced in three treatments. Subjects were given signals about the expectation of the other. In comparison to neutral decision-makers, the surprise-seekers were less likely and the regret-averse ones were more likely to make a choice in conformity to the signal they received. Statistically significant results were obtained when the signals were strong.
Keywords: Altruism, Belief Elicitation, Expected Utility, Regret, Surprise
JEL Classification: C91, D81
Suggested Citation: Suggested Citation